I am trying to drop my character but it keeps giving me an error saying insufficient capacity. It went allow me to drop.

Hi, you are encountering a bug, I raised that bug for you here: http://bugs.swcombine.com/view.php?id=4622

As part of dropping your character, it drops items you are holding. But, you are in some situation where you cannot drop items (e.g. aboard a ship without sufficient capacity).

If you can manually drop your items elsewhere then drop character will work, otherwise you will need to create a support ticket until this bug can be fixed. The asim will likely just delete your items to allow you to drop.